Does HelloFresh (ETR:HFG) Have The DNA Of A Multi-Bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of HelloFresh (ETR:HFG) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on HelloFresh is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.36 = €286m ÷ (€1.2b - €382m) (Based on the trailing twelve months to September 2020).

Therefore, HelloFresh has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Online Retail industry average of 7.9%.

View our latest analysis for HelloFresh

Above you can see how the current ROCE for HelloFresh compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering HelloFresh here for free.

What Does the ROCE Trend For HelloFresh Tell Us?

We're delighted to see that HelloFresh is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 36% on its capital. And unsurprisingly, like most companies trying to break into the black, HelloFresh is utilizing 922% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On HelloFresh's ROCE

In summary, it's great to see that HelloFresh has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 398% to shareholders over the last three years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for HelloFresh that we think you should be aware of.

HelloFresh is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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